By Steve Dalton, Rahul Kamath and Emma Yu, Oracle
As the global economy revs up in 2021 and beyond, mergers and acquisitions (M&As) and divestitures are expected to be a major source of fuel. Low borrowing costs, high cash reserves, and a desire to quickly grow revenues will motivate buyers. On the other side, companies that need cash and other resources may look to be acquired, and some Baby Boomer owners may want to cash out and retire.
An MIT Technology Insights global survey of 297 executives found that 39% are planning to act on M&A opportunities as one of four big moves toward recovery. Leading the way are larger companies: 49% of companies with $1 billion or more in annual revenue plan to make such a move, while 32% of companies with less revenue plan to do so.
While M&As can open new opportunities, they also come with challenges. At the top of the list is disparate finance and accounting systems, which make it harder to assess whether full value is being achieved.
To ensure that the right M&A decisions are made, transactions within these systems need to be assessed carefully prior to the deal. For potential acquirers, the capability to visualize and analyze how possible M&A targets compare in the context of their own business and operations—and assess whether the deals are accretive or dilutive—can be made possible with enterprise data management and scenario modeling capabilities.
Integration is critical to realize desired synergies, whether that means aligning calendars and charts of accounts with the acquired company, designing new organizational structures and roles, rationalizing product lines and categories, or reorganizing based on legal and operational needs. For this to happen, cross-functional teams must come together to design and deploy the new corporate structure using an integrated set of business processes.
Finance teams play a key role in demonstrating value derived from the integrated organization. They must develop an effective reporting backbone, and for this they need a single, trusted source of financial results to help them measure value.
This doesn’t always mean you need to immediately move all entities onto a single ERP system. Sometimes there are valid business reasons to remain on separate ERPs. In such cases, you need a solution that can harmonize disparate financial data so you can understand the business holistically. One way to achieve this goal is to establish an enterprise-wide finance and accounting platform. This also helps finance executives onboard the acquisitions faster and assess the performance of the merged or acquired entities more accurately and effectively.
So what are the best practices for M&A when it comes to technology? We’ve identified the following:
To determine viable M&A candidates, perform strategic modeling to help assess risks and outcomes. This will involve financial planning, cash flow analyses, and assessment of workforce needs.
This cross-functional team should be balanced with people from the acquiring company and the acquired. If the company has an ongoing M&A strategy, roles and structures for this might already be in place.
Ideally, planning for management, statutory, and tax reporting should happen in the early stages of overall planning. A best practice is to start planning for reporting the moment it’s determined the deal will proceed.
In addition to providing a single source of trusted financial information, centralizing the record-to-report process will eliminate recording and reporting redundancies. Subledger activities continue in legacy ERP systems, but most other aspects of the record-to-report process should be performed by the corporate accounting team from an enterprise-wide accounting platform.
This is the ultimate goal—to move to a single, cloud-based ERP. Two decisions are key here. The first is whether to onboard end-to-end processes to the accounting platform all at once, or to first initially use finance shared services and then phase the move of physical operations. The second is to determine which ERP systems to move to the enterprise-wide platform first. Take into consideration the age and complexity of the different ERP systems and the risks associated with retiring each system.
The bottom line for any company considering a divestiture, merger, or acquisition right now is that modeling and planning are essential to cost-effectively reach your goals. A comprehensive cloud platform of business applications not only helps with these two requirements, but also with streamlining and measuring integration for faster return on investment.